top of page
  • by Karma Loveday

Frontier Economics calls for smarter green regulation to speed up nature, net zero and growth goals

Smarter and more effective environmental regulation is needed to accelerate progress towards climate and nature policy goals and to drive economic growth, according to a new report by Frontier Economics for the Aldersgate Group.

The role of regulation in restoring nature and delivering net zero found regulation can play a critical role in delivering faster improvements and lowering societal costs by protecting the ecosystems that the economy relies on, providing businesses with a level playing field, and sending signals that incentivise innovation.

Noting the environment is different from other areas because of its complexity and interlinkages, the report identified four key principles environmental regulation should adopt:  

  • the whole of the environment – highlighting the importance of not targeting one aspect of climate or nature without considering others;

  • multidisciplinary perspective – acknowledging the limitations of a narrow cost-benefit analysis approach to support decision making, and the importance of including evidence from a range of disciplines;

  • a cross-sector approach that emphasises the importance of considering multiple sectors to develop more consistent incentives, reduce costs and deliver greater environmental benefits than when sectors are viewed in isolation; and

  • fairness that outlines that it is important to make sure that location, ability-to-pay and intergenerational fairness are considered when determining where the burden of improving the environment should fall.

The report also provided a practical checklist on how the principles can be applied in practice, and illustrated this with two case studies, one of which concerned water catchments.

Frontier Economics recommended policymakers make the following changes to green regulation.

  • Target outcomes not outputs: This should be the default for regulation, with deviations permitted when targeting the outcomes is too difficult or too costly – as long as regulators have evaluated the unintended consequences and transaction costs that come with targeting outputs. 

  • Full assessment of societal costs and benefits: Building on guidance in the HM Treasury’s Green Book to move beyond narrow financial cost-benefit analysis (CBA), regulatory design and reform should draw on quantitative and qualitative evidence from other disciplines (biology, chemistry, ecology, economics, engineering and health).

  • Recognise the cost of inaction or insufficient action: There is an economic and social cost to doing nothing when it comes to the environment. However, some interpretations of the precautionary principle can intrench a status quo bias within regulators, so it is important that the damage from inaction is properly counted alongside the costs and benefits from action. 

  • Innovation at scale for the environment: Regulation can help incentivise innovation at scale as it provides a level playing field and certainty for investment. New environmental regulation might come with risks but regulators cannot be overly risk-averse given the pace of change that is needed. 

  • Factor in climate and nature tipping points and irreversibility: Tipping points in both climate and nature require special treatment as repairing damage past a tipping point may not be possible, contrary to much economic analysis which assumes damages can be reversed with sufficient money and effort. 

  • Primary focus on polluter pays: The default for regulation should be that the polluter pays for the damage they are causing and they have flexibility in how they meet the requirements. When this is not possible, regulators should consider how the cost should be allocated and prioritise acting early to undo environmental damage over full cost recovery from past polluters. 

  • Increased cross-sector collaboration: Current regulation is fragmented, and greater collaboration is required. The fact that environmental responsibilities are split across many bodies make it even more important to ensure that regulation takes a broad perspective. It also needs to be matched by greater comprehensive oversight. 

  • Ensure the resources of regulators increase with their responsibilities: Meeting existing environmental objectives requires extra analysis and responsibilities for regulators, and new requirements place added demands on regulators. The financial and human resources available to regulators need to be increased accordingly.


bottom of page